UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF FLORIDA
(WEST PALM BEACH DIVISION)
In re: ) CHAPTER 11
EMPIRE OF CAROLINA, INC., and ) Case Nos. 00-35179
EMPIRE INDUSTRIES, INC., ) and 00-35180-BKC-PGH
Debtors ) (Jointly Administered)
)
ORDER GRANTING DEBTORS' EMERGENCY MOTION TO
SELL SUBSTANTIALLY ALL OF THEIR ASSETS AND TO
ASSUME AND ASSIGN EXECUTORY CONTRACTS; AND
PROVIDING OTHER RELIEF
THIS MATTER came before the Court for final hearing in West Palm Beach,
Florida on June 27, 2001 at 10:30 a.m. upon the Emergency Motion (the "Sale
Motion") of Empire of Carolina, Inc. and Empire Industries, Inc. (collectively,
the "Debtors") to: (A) Sell Substantially All of Their Assets; (B) Assume and
Assign Executory Contracts; (C) Establish Bidding and Sales Procedures; and (D)
Approve Break-Up Fee; and on June 1, 2001 at the preliminary hearing (the
"Preliminary Hearing"), the Court entered an Order (the "Bidding Procedures
Order") that, among other things, (i) scheduled the Final Sale Hearing1 for June
27, 2001 at 10:30 a.m. (or as soon thereafter as the matter could be heard);
(ii) required that any objection to the Asset Sale (as defined below) be filed
with the Court and served on specified counsel not later than two (2) days prior
to the Final Sale Hearing; (iii) established bidding procedures for Competing
Bids and/or Partial Competing Bids relating to the proposed sale of the Toy
Assets (including, as modified at the Preliminary Hearing, the HK Stock) and
assignment of the Toy Licenses and other executory contracts and unexpired
leases to the Purchaser as contemplated in the Sale Motion and the Asset
Purchase Agreement (such sale and assignment collectively referred to as the
"Asset Sale"); (iv) approved the Break-Up Fee; and (v) set. forth the required
notice of the Asset Sale and the Final Sale Hearing to be given to interested
parties; and the Court, upon consideration of the Sale Motion (and the exhibits
attached thereto) and the presentation of evidence, having considered the
limited objections filed by General Foam Plastics Corporation ("General Foam")2
and the Palm Beach County Tax Collector's Office, and after hearing the
arguments of counsel at the Preliminary Hearing and the Final Sale Hearing and
otherwise being duly advised in the premises, and upon finding that due notice
of the Sale Motion, the Bidding Procedures Order and the Final Sale Hearing has
been given to all required parties in accordance with applicable law and the
Bidding Procedures Order and that no other or further notice need be given, that
the best offer for the Asset Sale in accordance with the terms as conditions set
forth in the Bidding Procedures Order was received from Alpha International,
Inc. (the "Purchaser") for the Purchase Price of $6,250,000.00 and other
consideration as set forth in the Asset Purchase Agreement, and that the relief
sought by the Debtors in the Sale Motion is necessary and in the best interests
of the Debtors' creditors and their estates and other parties in interest and
that sufficient cause exists for granting the relief sought in the Sale Motion
(Lanard Toys Limited ("Lanard") submitted a timely conforming competing bid in
accordance with the Bidding Procedures Order. At the conclusion of the sale,
Lanard agreed to serve as a back-up bidder and to proceed with a closing of the
transactions contemplated by the Asset Purchase Agreement which Lanard signed in
open Court at the Final Sale Hearing for a purchase price of $5,200,000.00, at
the election of the Lenders and the Debtors. If Alpha International, Inc. fails
to close when and as required by the Asset Purchase Agreement and the Lenders
and the Debtors elect to proceed to close with Lanard, then Lanard shall be
deemed to be the "Purchaser" as such term is defined in this Order);
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THE COURT HEREBY FINDS AND DETERMINES that:3
A. The Court has jurisdiction over this matter pursuant to 28
U.S.C.ss.1334, and this matter is a core proceeding pursuant to 28
U.S.C.ss.ss.157(b)(2)(A), (N) and (O). Venue in this district is proper under 28
U.S.C.ss.ss.1408 and 1409;
B. The statutory and other predicates for the relief sought in the Sale
Motion are 11 U.S.C.ss.ss. 105(a), 363 and 365, Federal Rules of Bankruptcy
Procedure 2002, 6004 and 6006, and Local Rules 6004-1 and 9013-1;
C. As evidenced by the affidavits and/or certificates of service and
publication on file with the Court: (1) proper, timely, adequate and sufficient
notice of the Sale Motion, the Preliminary Hearing, the Asset Sale, the Bidding
Procedures Order and the Final Sale Hearing has been provided to all parties
entitled to such notice and in accordance with applicable law and the Bidding
Procedures Order; (2) such notice was good, sufficient and appropriate notice
under the particular circumstances of this case; and (3) no other or further
notice is or shall be required in order for the Court to grant the relief
provided herein;
D. On November 17, 2000 (the "Petition Date"), the Debtors filed
voluntary petitions for relief under Chapter 11 of the Bankruptcy Code. The
Debtors' cases are being jointly administered for procedural purposes only. The
Debtors are managing their assets and operating their businesses as
debtors-in-possession pursuant to Sections 1107 and 1108 of the Bankruptcy Code,
no trustee or examiner having been appointed. On December 1, 2000, the Committee
was appointed and thereafter reconstituted on December 12, 2000. The Committee
is represented by counsel, whose retention has been approved by the Court;
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E. A fair and reasonable opportunity to Object and to be heard
regarding the Sale Motion, the Asset Sale and the relief related thereto has
been afforded to all interested persons and entities, including, without
limitation, the following: (i) the Office of the United States Trustee; (ii)
Counsel to the Committee; (iii) Counsel for the Lenders; (iv) Counsel for the
Purchaser; (v) all non-debtor parties to the executory contracts to be assumed
by the Debtors and assigned to the Purchaser; and (vi) all known entities which
have expressed a bonafide interest to the Debtors regarding the purchase of any
assets of the Debtors or its subsidiaries in the past two years;
F. The Debtors have demonstrated (a) a good, sufficient and sound
business purpose and justification for the Asset Sale, and (b) compelling
circumstances for the Asset Sale pursuant to 11 U.S.C. ss.ss. 105(a), 363(b) and
365(a) prior to, and outside of, a plan of reorganization in that, without
limitation: (i) the Debtors believe that the Toy Assets, the HK Stock and the
Toy Licenses have been marketed extensively and that customers and vendors will
essentially stop doing business with the Debtors in the near future unless a
sale occurs to a viable purchaser; (ii) unless the Asset Sale is quickly
approved by the Court, the Purchaser will withdraw the Asset Purchase Agreement
and the Toy Licensors will see that the Asset Sale does not go forward; (iii)
unless the Asset Sale is quickly approved, by the Court, it is unlikely that the
Toy Licensors will extend the terms of the Toy Licenses, and the Toy Licensors
will begin looking for alternative licensees, and customers of the Debtors will
begin looking for alternative sources of supply in connection with placing
future orders; (iv) the Purchase Price is the highest and best bid for the Toy
Assets, the HK Stock and the Toy Licenses following a fair opportunity for
Competing Bids (including Partial Competing Bids) and after the Debtors have
marketed these assets in the past; (v) the consummation of the Asset Sale
presents the best opportunity for the Debtors to realize the value of the Toy
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Assets, the HK Stock and the Toy Licenses and to avoid devaluation thereof; (vi)
the Debtors' being subject to their insurance coverages expiring on July 1,
2001; and (vii) the Debtors' post-petition financing will most likely expire on
July 13, 2001 and it is unlikely that the Lenders will extend this financing and
preserve the opportunity for a "going concern" sale of the Toy Assets and the HK
Stock, and the assignment of the Toy Licenses, if the Asset Sale to Purchaser is
not consummated;
G. The highest and best cash bid timely submitted in accordance with
the Sale Motion and the Bidding Procedures Order was submitted by the Purchaser
in the amount of the Purchase Price and other consideration as set forth in the
Asset Purchase Agreement. The other terms and conditions of the Asset Sale are
set forth more fully in the Sale Motion and the Asset Purchase Agreement. The
Purchase Price is the best offer received by the Debtors after a period in which
prospective purchasers had ample opportunity to seek relevant information from
the Debtors and to enter into discussions or negotiations with the Debtors
concerning the Asset Sale, and the Purchase Price and the other terms of the
Asset Purchase Agreement are fair and reasonable and in the best interests of
the Debtors, their creditors, and their estates, and the Purchase Price
constitutes fair and adequate consideration and reasonably equivalent value for
the Toy Assets, HK Stock and the assignment of the Toy Licenses;
H. The Debtors are the sole and lawful owners of the Toy Assets and the
HK Stock and have good and marketable title to same, and subject to this Order,
the Debtors have the right and authority to convey the Toy Assets and the HK
Stock, and to assign the Toy Licenses and the other executory contracts and
unexpired leases identified in the Asset Purchase Agreement, to the Purchaser
(including, without limitation, assumption of the leases for the Debtors' New
York City showroom and Delray Beach, Florida offices);
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I. With respect to the Asset Sale, Purchaser is a good-faith purchaser
pursuant to Section 363(m) of the Bankruptcy Code, and Purchaser will be acting
in good-faith in closing the Asset Sale at any time after the entry of this
Order. The Purchaser is not an "insider" of the Debtors as defined in 11 U.S.C.
ss. 101, and the Purchase Price was negotiated in good-faith, from arm's length
bargaining positions, without collusion and after extensive negotiations between
Purchaser, the Debtors' Consultant and the Debtors' Lenders. Therefore, the
Purchaser is entitled to the protections of 11 U.S.C. ss. 363(m) with respect to
the Toy Assets, the HK Stock and the assignment of the Toy Licenses. The Asset
Sale is a sale in good-faith within the meaning of 11 U.S.C. ss. 363(m);
J. The Debtors' sale of the Toy Assets and the HK Stock shall be free
and clear of any and all claims, liens and encumbrances pursuant to 11 U.S.C.
ss. 363(1) because one or more of the standards set forth in 11 U.S.C. ss.
363(f)(l)-(5) has been satisfied. All holders of any such claim, lien or
encumbrance who did not object, or who withdrew their objections, to the Asset
Sale or to the Sale Motion are deemed to have consented pursuant to section
363(f)(2) of the Bankruptcy Code. Further, any holder of any such claim, lien or
encumbrance who did object falls within one or more of the other subsections of
section 363(f) of the Bankruptcy Code;
K. No asset is included in the Asset Sale to the extent that another
party has a lien, encumbrance or fee interest that is duly perfected and senior
in right to the liens of the Lenders and the Debtors;
L. The transfer of the Toy Assets and the HK Stock, and the assignment
of the Toy Licenses, is or will be a legal, valid and effective transfer and/or
assignment or those assets, and will vest the Purchaser with all rights, title
and interest of the Debtors in and to those assets, free and clear of any and
all claims, liens and encumbrances, except any such claims, liens and
encumbrances as may be expressly assumed by the Purchaser in the Asset Purchase
Agreement;
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M. The transfer of the Toy Assets and the HK Stock, and the assignment
of the Toy Licenses, does not and will not subject the Purchaser to any
liability relating to, or otherwise affecting those assets, by reason of such
transfer, other than those liabilities expressly assumed in the Asset Purchase
Agreement, and provided that Purchaser will assume the risk of potential
trailing liabilities to Hong Kong current vendors to Empire HK, as well as the
risk of any liabilities under Hong Kong law to employees of Empire HK, as that
subsidiary is wound up or deregistered;
N. Any and all Toy Licenses to be assumed by the Debtors and assigned
to the Purchaser either require no "cure" (as the Debtors have been current on
all obligations subject to cure) or have been or will be "cured" as a condition
to closing the Asset Sale;
O. To the extent required, Purchaser, as assignee of the Toy Licenses,
has and/or will provide adequate assurance of future performance within the
requirements of 11 U.S.C.ss. 365(f)(2) to the various licensors of the Toy
Licenses; and
P. All licensors of the Toy Licenses whose consent is required for the
Debtors to assume and assign any Toy License have given such consent.
NOW, therefore, it is hereby ORDERED, ADJUDGED and DECREED that:
1. Each item of relief requested by the Debtors in the Sale Motion is
GRANTED;
2. All objections to the Sale Motion, the Asset Sale or any other
related relief requested by the Debtors that have not been withdrawn, waived or
settled, and all reservations of rights included in such objections or
otherwise, are OVERRULED on the merits subject to the agreements announced on
the record in open Court in respect of the limited objections enumerated above;
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3. The Asset Sale, the Asset Purchase Agreement (as amended in the
manner and to the extent as may have been announced on the record at the Final
Sale Hearing, or thereafter in writing upon the mutual consent of the Purchaser,
the Debtors and the Lenders, including, without limitation, (i) as to Alpha
International, Inc., the waiver of Section 8.1 of the Asset Purchase Agreement
with respect to the Termination Re-Engagement of Employees; (ii) Section 11.1(g)
of the Asset Purchase Agreement with respect to Termination Event specified
therein; and (iii) Section 2(a) of the Asset Purchase Agreement with respect to
all cash and cash equivalents of UK Empire and all accounts receivable and
promissory notes of UK Empire to be included in as assets to be sold in the
asset Sale; and all transactions contemplated thereby, are APPROVED, and the
Debtors are authorized, empowered and directed to perform their obligations
under the Asset Purchase Agreement, and to take all necessary actions to
effectuate the Asset Sale.
4. The Debtors are hereby authorized, empowered and directed, pursuant
to 11 U.S.C. ss.ss. 105(a), 363(b), 363(f), 363(m) and 365(a), to sell and
transfer the Toy Assets and the HK Stock, and to assume and assign the Toy
Licenses, to Purchaser pursuant to the terms, conditions and procedures set
forth in the Sale Motion and the Asset Purchase Agreement, and good and valid
title in such assets shall pass to Purchaser at closing, free and clear of any
and all liens, claims and encumbrances, including, without limitation,
mechanics' liens, materialmens' liens, other consensual and non-consensual
liens, statutory liens, security interests, claims (as defined in 11 U.S.C. ss.
101), reclamation claims, mortgages, pledges, restrictions, hypothecations,
charges, indentures, loan agreements, instruments, leases, licenses, options,
rights-of-first-refusal, contracts, offsets, recoupment, rights of recovery,
judgments, orders, claims for reimbursement, contribution, indemnity or
exoneration, and decrees of any court or foreign or domestic governmental
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entity, interest, products liability, alter ego, environmental, successor
liability, tax and any and all other liabilities and claims, to the fullest
extent of the law, in each case whether secured or unsecured, noticed or
unnoticed, choate or inchoate, filed or unfiled, scheduled or unscheduled,
recorded or unrecorded, perfected or unperfected, allowed or disallowed,
contingent or non-contingent, liquidated or unliquidated, matured or unmatured,
material or non-material, disputed or undisputed, or known or unknown, whether
arising prior to, on, or subsequent to the Petition Date, whether imposed by
agreement, understanding, law, equity or otherwise;
5. The Toy Licenses and the leases for the Debtors' New York City
showroom and Delray Beach, Florida offices shall be deemed to be assumed and
assigned by the Debtors to the Purchaser;
6. To the extent required under applicable law, Purchaser shall provide
adequate assurance of future performance within the requirements of 11 U.S.C.ss.
365(f)(2) to the licensors of any Toy License to be assumed by the Debtors and
assigned to the Purchaser as part of the Asset Sale;
7. Except as may otherwise be provided in this Order or in the Asset
Purchase Agreement, as may be amended, all parties and/or entities asserting any
claim, lien or encumbrance against any of the Toy Assets, the HK Stock or the
Toy Licenses are hereby permanently enjoined and precluded from: (i) pursuing
such claim, lien or encumbrance against the Toy Assets, the HK Stock or the Toy
Licenses; (ii) asserting, commencing or continuing in any manner any action or
claim against Purchaser (or any of its subsidiaries or affiliates) or any
director, officer, agent, representative or employee of the Purchaser or any
lender to or investor in the foregoing entities (collectively, the "Protected
Parties") or against any Protected Party's assets or properties on account of
such claim, lien or
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encumbrance; (iii) the enforcement, attachment, collection or recovery, by any
manner or means, of any judgment, award or decree or order against the Protected
Parties or any asset or properties of the Protected Parties on account of such
claim, lien or encumbrance; (iv) creating, perfecting or enforcing any
encumbrance of any kind against the Protected Parties or any properties or
assets of the Protected Parties on account of such claim, lien or encumbrance;
(v) asserting any setoff, right of subrogation or recoupment of any kind against
any obligations due to the Protected Parties on account of such claim, lien or
encumbrance; and (vi) any action, in any manner, in any place whatsoever,
affecting the Toy Assets, the HK Stock or the Toy Licenses that otherwise does
not conform to or comply with the provisions of this Order, the Sale Motion or
the Asset Purchase Agreement;
8. As of the date of this Order, effective upon
the occurrence of the Closing Date, the Purchaser shall be deemed to have
released the Debtors, the Lenders and the Committee and their respective present
and former directors, officers, employees, consultants, agents, representatives,
financial advisors, attorneys and accountants from any and all claims or
liabilities that the Purchaser may be entitled to assert, whether known or
unknown, foreseen or unforeseen, existing or hereafter arising (a) based upon
any act or occurrence or failure to act taken on or before the date of this
Order arising out of the business affairs of the Debtors or their estates or the
Toy Assets, the HK Stock or the Toy Licenses, and (b) based in whole or in part
upon any act or omission, transaction or the occurrence taking place on or
before the Closing Date of the Asset Sale in any way relating to the Debtors,
the Debtors' Chapter 11 cases or the Asset Sale;
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9. Each and every federal, state and local governmental agency or
department is hereby directed to accept any and all documents and instruments
necessary and appropriate to consummate the transactions contemplated by the
Asset Sale or the Asset Purchase Agreement;
10. All entities who are presently, or on the date of the closing of
the Asset Sale may be, in possession or control of some or all of the Toy
Assets, the HK Stock or the Toy Licenses are hereby directed to surrender
possession or control over such assets to the Purchaser on such Closing Date;
11. With respect to employees and officers of the Debtors who will be
employed by Purchaser following the Asset Sale, specifically, Eric Deininger,
Linda Zant and any other former employee or officer of the Debtors who the
Debtors, the Lenders or the Committee shall reasonably require for the purposes
provided below (together, the "Former Officers and Employees"), the Purchaser
shall make available the Former Officers and Employees to the Debtors, the
Lenders and the Committee at the Debtors' reasonable expense, as may be
reasonably necessary to assist the Debtors, the Lenders and the Committee in
matters relating to the Asset Sale (including the transition of control from the
Debtors to Purchaser), the administration of the Debtors Chapter 11 Cases, the
closing of the Debtors' Chapter 11 Cases, and any other similar matter for which
the Debtors, the Lenders or the Committee shall reasonably require the
assistance of any Former Officer or Employee. Notwithstanding any provision
contained in this Paragraph 11, Purchaser shall not be required to make
available any Former Officer and Employee for more than ten (10) hours in one
week (Sunday through Saturday), and Purchaser shall not be required to make
available any Former Officer and Employee after September 30, 2001;
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12. During normal business hours, Purchaser shall allow the Debtors,
the Lenders and the Committee access to all business records, books and other
documents related to the Debtors and which are under the Purchaser's care,
custody or control and which the Debtors, the Lenders and the Committee
reasonably require in order to assist with matters relating to the Asset Sale
(including the transition of control from the Debtors to Purchaser), the
administration of the Debtors' Chapter 11 Cases, the closing of the Debtors'
Chapter 11 Cases, and any other similar matter which the Debtors, the Lenders
and the Committee shall reasonably require access to such records, books and
documents. The Purchaser shall provide whatever assistance may be reasonably
required to provide the Debtors, the Lenders and the Committee with such access.
13. For the period beginning July 1, 2001 and ending on the Closing
Date of the Asset Sale or upon a Termination of the Asset Purchase Agreement (in
accordance with its terms) (or such later date as may be agreed to in writing by
the Debtors, the Lenders and the Purchaser or ordered by this Court), the
Purchaser shall provide insurance coverage, naming each the Debtors and the
Lenders as a named insured or an additional named insured, for the following
risks and/or exposures: (i) General Liability, (ii) Excess Liability, (iii)
Primary Property, (iv) Excess Property, (v) Business Automobile, (vi) Workers'
Compensation, (vii) Cargo, (viii) Foreign Liability, and (ix) Admitted Foreign
Property
14. The Purchaser, as a good-faith purchaser, is entitled to the full
protections afforded under 11 U.S.C.ss.363(m);
15. The Asset Sale approved by this Order shall not be subject to
avoidance pursuant to 11 U.S.C.ss. 363(n);
16. The Debtors shall be, and they hereby are, authorized and directed
to take such actions as may be necessary to effectuate the terms and provisions
of this Order;
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17. The Debtors and the Lenders are hereby authorized and empowered to
execute and deliver any and all instruments as may be required to effectuate the
terms of the Asset Purchase Agreement and this Order. The Asset Purchase
Agreement and any related agreements, documents or other instruments may be
modified, amended, or supplemented by the parties thereto, in a writing signed
by all necessary parties and consented to by the Lenders in writing, and in
accordance with the terms therefore without further order of this Court,
provided that any such modification, amendment or supplement is not material;
18. All of the terms and provisions of the Asset Purchase Agreement and
this Order shall be binding in all respects upon, and shall inure to the benefit
of the Purchaser, the Debtors, the Debtors' estates, and their successors and
assigns including, without limitation, any chapter 11 trustee hereinafter
appointed for the Debtors or any trustee appointed in a chapter 7 case if any of
the Debtors' cases are converted from chapter 11, and this Order shall survive
the appointment of such a trustee or the conversion of these cases to cases
under chapter 7 of the Bankruptcy Code;
19. Pursuant to the discretion afforded this Court by the provisions of
Fed.R.Bankr.Pro. 7062, this Order shall be effective and enforceable immediately
upon entry and the Closing shall take place as required by Section 4 of the
Asset Purchase Agreement. The provisions of this Order are non-severable and
mutually dependent;
20. This Court shall retain exclusive jurisdiction to enforce the
provisions of this Order and the Asset Purchase Agreement and to resolve any
dispute concerning this Order, the Asset Purchase Agreement, the Asset Sale, or
the rights and duties of the parties hereunder or thereunder or any of the
issues relating to this Order, the Asset Purchase Agreement or the Asset Sale;
and
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21. All of the proceeds derived from the Asset Sale upon occurrence of
the Closing Date shall be remitted to the Lenders for application in reduction
of their Pre-Petition Indebtedness, save and except the cash portion of the
amounts the Lenders have agreed to set aside for the benefit of the Debtors'
general unsecured creditors. Additionally, the Debtors shall retain and not
remit to the Lenders the sum of $400,000.00 pending a determination by the Court
of the amounts, if any, due Houlihan Lokey Howard & Zukin Capital.
22. Notwithstanding anything in this Order or the Asset Purchase
Agreement to the contrary, the Purchaser shall not acquire any right, title or
interest in or to any assets or property sold by the Debtors to General Foam
pursuant to the May 4, 2000 Asset Purchase Agreement between the Debtors and
General Foam and nothing shall limit or effect General Foam's rights with
respect to such assets and property.
23. If the closing with Alpha International, Inc. is not timely
concluded, the Debtors and the Lenders are authorized but not obligated, without
further Order of this Court, to promptly conclude the Asset Sale with Lanard in
accordance with the terms and conditions of agreed upon back-up bid in the
amount of $5,200,000.00, provided, however, Lanard shall comply with all
requirements of this Order and terms and conditions of the Asset Purchase
Agreement, as amended.
ORDERED in the Southern District of Florida on June 27, 2001.
/S/ PAUL G. HYMAN
------------------------------------
HONORABLE PAUL G. HYMAN
UNITED STATES BANKRUPTCY JUDGE
Copy furnished to:
Brian K. Gart, Esq.
(Attorney Gart is directed to serve conformed copies of this Order upon all
parties on the Master Service List immediately upon receipt thereof, and to file
a Certificate of Service with the Court confirming such service.)
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1 Unless otherwise indicated, all capitalized terms shall have the meaning
provided in the Sale Motion or in the Bidding Procedures Order.
2 The Committee has been granted an extension to the time of the Final sale
Hearing to file and serve any objections it may have to the Asset Sale.
3 Where appropriate, findings of fact shall be construed as conclusions of law,
and conclusions of law shall be construed as findings of fact.
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